If your ducks are now in a row and and you've married, a next step may be to complete a 2020 version of the W-4 form. The Internal Revenue Service (IRS) issued a new W-4 to reflect the changes made to the way your employer determines how much tax to withhold from your paycheck.
Allowances are no longer used to guide the calculation of the tax withholding according to your income, deductions and marital status. Instead, your employer now relies on information you document in the new W-4 regarding your expected filing status, income(s) from other jobs, number of dependents and the deductions you will claim when filing your taxes. In regards to filing status in particular, a married couple must elect one of two choices: filing jointly or separately.
Determining Your Filing Status
To select a filing status, first determine the eligibility criteria for each one. If you're married and your spouse is living, you have two options:
- Married Filing Jointly (MFJ): When you file jointly, you file a single return that reports the income and deductions for both you and your spouse.
- Married Filing Separately (MFS): If you file separately, each spouse files a return, reporting income and deductions individually.
If you're married by Dec. 31 of the tax year for which you file the return, you can file jointly, whether you were married one month of the year or 12.
Completing the W-4 Form
When you complete the W-4, the initial step is electing a filing status. If your spouse doesn't work, for instance, it's likely you'll file married filing jointly. A review of the new W-4 instructions should ensure that you choose the right one.
- Your filing status influences your tax rates and standard deduction, each of which impacts the amount of your income that’s not subject to federal income tax. The greater the number of dependents you have and deductions you claim, the less the amount of cash that's taken out of your paycheck. Ideally, your annual withholding and your tax liability should be approximately the same.
- If you have more than one job, or if you and your working spouse will file a joint return, the W-4 form requires you to perform one of two steps: Use the IRS estimator to estimate your withholding or, if you have two or more jobs, complete a W-4 for each job and estimate the withholding for each.
- The final step to complete the W-4 is to document adjustments, such as other earned income, additional deductions and the amount of additional tax you want your employer to withhold from your paycheck.
As you'll see when you complete the new W-4, the form requires calculations and elections based on your personal situation. So, it's a good idea to review your latest tax returns before you begin. Also, it may be wise to consult an accountant or visit IRS.gov and search for the Tax Withholding Estimator to make sure you have the right amount of tax withheld from your paycheck
Married Filing Jointly
In 2020, a married couple has the choice of a “married filing jointly” (MFJ) or “married filing separately” (MFS) status. If you elect the MFJ option, the following facts prevail:
Tax Rate MFJ: As a married couple that files jointly, you're taxed 10 percent of your combined income, up to $19,750, 12 percent of your income between $19,750 to $80,250 and so on to a maximum of 37 percent of income over $622,050.
Tax Credits MFJ: Tax credits available to couples who file a joint return include:
- Earned Income Tax Credit: The EITC benefits working spouses who earn a low to moderate income.
- American Opportunity Tax Credit: The AOTC reduces your taxes if you are paying tuition costs for a spouse or child.
- Lifetime Learning Tax Credit: The LLTC reduces the amount of taxes owed by those who are earning an undergraduate, graduate or professional degree.
- Adoption Credit: A tax credit for qualified adoption expenses or exclusion from income for employer-provided adoption assistance.
- Child and Dependent Care Tax Credit: A tax credit related to the expenses of caring for a qualifying individual so you and your spouse can work or actively look for work.
- Premium Tax Credit: A tax credit that helps families pay health insurance premiums.
When to File Together
If the income of one spouse is much greater than that of the other (you earn $85,000 and your spouse earns $35,000), it's likely that filing a joint return will place the higher wage earner in a lower tax bracket. On the other hand, if both incomes are relatively high, combining them might mean you pay more tax.
Read More: Differences in Claiming Single Or Married on W-4
Filing separately as a married couple has some limitations. If you itemize deductions, your spouse can't claim the standard deduction. This means that you must both itemize or use the standard deduction.
Married Filing Separately
As a married couple, if you elect the "married filing separately" option:
Tax Rate MFS: As a married couple that files separately, you're taxed 10 percent of your income up to $9,875, 12 percent of your income between $9,875 to $40,125 and so on to a maximum of 37 percent on income over $311,025.
- Earned Income Tax Credit: Not available to taxpayers with MSF status.
- American Opportunity Tax Credit: Not available to taxpayers with MSF status.
- Lifetime Learning Tax Credit: Not available to taxpayers with MSF status.
- Adoption Credit: Not available to taxpayers with MSF status.
- Child and Dependent Care Tax Credit: Not available to taxpayers with MSF status.
- Premium Tax Credit: Not available to taxpayers with MSF status except under certain criteria.
When to File Separately
Filing separately as a married couple has some limitations. If you itemize deductions, your spouse can't claim the standard deduction. This means that you must both itemize or use the standard deduction. Also, as the above section indicates, you would be ineligible for education tax credits, student tax deductions, the earned income credit and other tax credits.
In addition, if you file separately, neither you nor your spouse will be eligible for the premium tax credit, which helps low or moderate income people buy health insurance through the exchanges established in the Affordable Care Act.
Occasions when couples should consider filing separately include when one spouse has fallen behind in student loan payments, owes back taxes or child support. Because joint filers are liable for each other's debts, both spouses could have their wages garnished regardless of who actually owes the money.
Revising your W-4 Form
If your marital status has recently changed, a next step might be to revise your W-4 form. This form guides an employer's calculation of the amount of income tax to withhold from your paycheck. Before you complete the form, consult an accountant or IRS literature to understand the ramifications of the choice you make.
- Internal Revenue Service: Form W-4 Employee's Withholding Certificate
- Internal Revenue Service: Home
- Internal Revenue Service: Tax Withholding Estimator
- NBC Make It: Here are your new income tax brackets for 2020
- Internal Revenue Service: IRS provides tax inflation adjustments for tax year 2020
- Internal Revenue Service: Earned Income Tax Credit
- Internal Revenue Service: Topic No. 607 Adoption Credit and Adoption Assistance Programs
- American Opportunity Tax Credit
- Internal Revenue Service: Lifetime Learning Credit
- Internal Revenue Service: Topic No. 602 Child and Dependent Care Credit
- Internal Revenue Service:The Premium Tax Credit - The Basics
- Tax Policy Center: What are marriage penalties and bonuses?
- Should You and Your Spouse File Taxes Jointly or Separately?
- Student Loan Hero: Should You File Taxes Jointly When Your Student Loans Are in Default?
- Debt.com: If My Spouse Owes Back Taxes Am I Liable?
- Internal Revenue Service: Topic No. 205 Innocent Spouse Relief
Billie Nordmeyer is an IT consultant of 25 years standing. As a senior technical consultant for SAP America and Deloitte Touche DRT Systems, a business analyst, senior staff, and independent consultant, Billie has worked across the retail, oil and gas, pharmaceutical, aeronautics and banking industries. Billie holds a BSBA accounting, MBA finance, MA international management as well as the Business Analyst and Software Project Management certificates from the Cockrell School of Engineering at the University of Texas at Austin.